Are Cars Losing Their Luster in Japan?

By James Simms

The Toray Teewave AR1 is among the vehicles generating buzz at the Tokyo Motor Show. But do Japanese consumers really want it?

You wouldn’t know it from the buzz ahead of this weekend’s Tokyo Motor Show, but Japan has fallen out of love with cars.

The country’s domestic auto sales have fallen in eight of the past 10 years. Demographics are part of the reason—the population is shrinking while more people are living in cities and riding public transit. Owners are also holding on to their rides longer: over the past decade, the average length of ownership has risen almost a year to 6.6 years because of more durable cars and slower wage growth, according to the Japan Automobile Manufacturers’ Association.

Other obstacles to higher sales are rooted in policy and bureaucracy.

Getting a license in Japan is both expensive and time-consuming. Typically, it costs around $3,000 and learners undertake at least two weeks of daily, intensive training. The population of licensed drivers aged 16-34 has fallen almost 15% in the past five years.

Then there are taxes. Added to a $23,000 cost of a new car will be $10,000 in taxes, JAMA says. That’s a tax rate on new cars of 43% versus 33% in Germany or 9% in the U.S. The industry has pushed for tax cuts. But so far the Finance Ministry in Tokyo has not been forthcoming.

The domestic market remains an important driver of sales for Japan’s auto makers, accounting for more than one-fifth of Toyota Motor’s unit sales and about 17% at Honda Motor.

But its decline has implications beyond the immediate bottom line of individual auto makers.

The sector accounts for about 15% of Japan’s industrial production and almost one-fifth of the nation’s exports. Production for sales at home and abroad also generates revenue for suppliers of glass, steel and electronics.

The domestic auto market is also a key testing ground for new manufacturing processes and designs. Last month, Toyota chief Akio Toyoda warned about the “destruction” of manufacturing know-how at Japan’s auto makers, partly because of high taxes hurting domestic sales. Other industry executives say selling cars in Japan is key to maintaining a critical mass for production technology and research and development.

Against that backdrop, the Made-in-Japan concept cars and fuel-efficient vehicles on display in Tokyo this weekend could be the past, not the future, of Japan’s auto industry.

Comments (4 of 4)

In Japan, it last longer than that (I think that 6.6 years and all are about before people replace current one with new models), but on about 11 years, tax will jump. So like myself, people will replace it with new one.

The ownership length may have to do with (1) resale to second hand car dealers (2) just adding a new car to own.

Normally, we have 3 cars @ household.

1:10 pm December 3, 2011

Super-gaijin wrote :

"...over the past decade, the average length of ownership has risen almost a year to 6.6 years because of more durable cars and slower wage growth..." When was it that the dreaded car inspection system was loosened up at the insistence of the US? I can't remember the name in Japanese nor the date, but for many years there was an annual inspection -- shaken, I think it was called -- that was ridiculously rigorous and basically made it uneconomic to own a car for more than a few years. That was relaxed under pressure from the US, and as a result Japanese can use their cars longer. Still, 6.6 years isn't that long (the average age of a car is 11.1 years in the US, and one would be hard-pressed to argue that US cars are so much more durable than Japanese cars. Moreover, I doubt if Japanese cars were really so poorly made a decade ago that people simply had to replace them after 5.6 years because they were breaking down. JAMA just doesn't want to admit that they connived with the govt to use the regulatory system to force people to buy new cars more often than they had to.

12:30 am December 3, 2011

Claudebaudelaire wrote :

Excellent post Motojiro. From my own experience in Japan, It just wasn't a joy to own a car in Tokyo. Outside of Tokyo, I wouldn't know. In Tokyo the narrow streets, narrow parking places and the views from the expressways are post apocalyptic. Don't get me wrong I love Tokyo, but the views, Ugh! Why would anyone want a car with arguably the greatest train and subway system in the world. I love driving but just not in Tokyo.

10:34 am December 2, 2011

Motojiro wrote :

I think people are getting little more cautious to purchase anything big.

In theory, we do indeed have to buy now than ever for - a big jump on VAT - whats called "shohizei" in Japan (consumption tax). Buy now before the new tax be introduced ! With or without eco-tax subsidies.

At a moment though, there are other things we have to consider. And these are preventing people from buying new ones.

Things like systems, electricity & maintenance prices, packages for electric cars. Mitsubishi & Nissan (and other makers) offer those cars. But it has a long way to go on the energy networks across Japan (high-speed charge spots); performance improvements on those cars' batteries and maintenance system packages; portable battery charger for owners. Should companies have improved so much on them, people will buy them up to replace what we own.

Things like gas prices. We do notice that prices may not spike today, but do expect the price will get inflated simply because suppliers are downsizing their productions in their countries and replacing them with new technologies (such as what we see from Hitachi, Mitsubishi, Mitsui, Sumitomo giant group companies do on their projects in those markets).

We may not buy more diesel engine based cars - those cars, like those in Europe, are good on emission - however, not good on weight and performance. Meaning, in Japan, it will add more costs on car weight tax and other costs. Mitsubishi is doing a lot more on diesel, but would wish to do more for E or PHV as they simply can like a magic.

I am not surprised that European car makers would try to get into Japan markets - but with their weight issues, performance issues, oversize issues (this is a daily trouble for so many in Japan to see too fatty cars running in narrow roads), overpriced issues (people can take a look at prices in their & other markets and compare it against offered prices here), etc. Not attractive at all. On US cars, such as Ford, I have seen one dealer out of 77 km, so no option. Beside GM CEO did a great job to kill the opportunity, even for non-Toyota owners.

So for a while, we may not see a single change in Japan on cars. But we are so sure that something will happen just before VAT change(s).

If someone really want to know, if there is a chance to find car buyers in Japan, at a moment, we would likely buy, in a short term, things like Toyota PHV (60 km @ liter), and other models.